Mortgage Defaults Lead to Higher Rental Housing Demand

A steady but slowing multi-family industry was among the findings of RubinBrown's 2008 Apartment Statistical Analysis. The report compiles data from 224 apartment projects in 26 states, representing operating results for 2007.
 
Decreasing employment and stagnant vacancy rates were two of the main reasons cited for this trend, with vacancy rates remaining close to 10 percent for most of 2007. In addition, about 800,000 fewer households were added last year than in 2006. However, a slowing economy may mean that more homeowners will become renters.
 
"We anticipate that there will be a large number of foreclosures in 2008 and perhaps into 2009," said Brian Keller, CPA, partner-in-charge, Real Estate Services Group, RubinBrown. "As a result, there will be greater demand for rental housing, some of which will be satisfied by apartments but some of which will be met by vacant single-family properties being funneled into the rental housing pool."
 
Keller says the apartment industry will find itself in a beneficial situation demographically in the near future, as children born in the '80s and early '90s, as well as immigrants, become householders. Of the more than 7 million householders under the age of 25, 75 percent are renters.
 
A decrease in new equity investment commitments has caused a negative impact on the housing credit market; however, new legislation by Congress is expected to alleviate some of that impact.
 
Keller notes that the rising cost of oil continues to directly and indirectly impact the apartment industry, increasing operating costs and decreasing operating income. The price of crude oil has risen nearly 500 percent over the past five years, leaving consumers with less money to allocate to rent or mortgage payments. 
 
Keller also highlights several trends in the housing market, including decreases in multifamily construction as the condominium market falls and the rise in green and sustainable building. As national voluntary standards are being developed for green buildings, many state and local governments have created incentives and initiatives for participation.
 
In St. Louis, the multifamily housing market began to slow at the end of 2007, with dropping occupancy rates and low rent increases. Residential redevelopment continues in the city; however, there may not be sufficient demand to keep up with it.
 
Overall, the industry is expected to benefit from slower construction of single-family homes and increased difficulties in lending. As the economy slows, demand for the affordable housing industry will increase, as it offers quality housing at a reasonable price.
 
The complete 2008 Apartment Statistical Analysis is available at www.rubinbrown.com/content/view/1204/101/.
 
RubinBrown is one of the Midwest's largest accounting and business consulting firms, with more than 320 team members working from offices in St. Louis and Kansas City. Founded in 1952, the firm's award-winning team members hold leadership roles in both national and local accounting organizations and have worked to establish best practices in accounting within specific industry segments. RubinBrown is an associated member of Baker Tilly International, a network of 138 independent firms in 104 countries. For more information, visit http://www.rubinbrown.com.
 
 

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